Compensation That Provides Motive for Risky Trading Is Targeted

WASHINGTON—Regulators are set to usher in a new era of tough banking oversight on Tuesday that drills to the core of Wall Street's profitable markets and trading businesses, according to a draft of the rule reviewed by The Wall Street Journal.

The so-called Volcker rule will put in place new hurdles for banks that buy and sell securities on behalf of clients, known as market making, and will restrict compensation arrangements that...

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